A Response to Olivier De Schutter by Katharina Pistor

[Katharina Pistor, Michael I. Sovern Professor of Law at Columbia Law School, responds to Olivier De Schutter, The Green Rush: The Global Race for Farmland and the Rights of Land Users. This post is part of the Second Harvard International Law Journal/Opinio Juris Symposium.]

I would like to thank Opinio Juris for the opportunity to participate in this debate about one of the most pressing issues of our time: the battle for control over increasingly scarce resources, including land, water, and natural resources. The Olivier de Schutter’s “Green Rush” addresses the heightened contest for arable land globally to ensure food safety or biofuel for different peoples. Most of these transactions are transnational in scope; and they tend to pair relatively poor countries on the sell side with affluent investors or countries on the buy side.

The major challenge these transactions pose is the impact they have on the people in the seller countries. There is little doubt that at least in the short term the people in countries on the buy side benefit from these transactions. It is their food security and gasoline supplements that these transactions shall secure. The impact on people in the selling countries is less certain. Some will benefit directly from these transactions as participants, intermediaries, or receivers of kickbacks, and others might find new employment opportunities; yet significant parts of the population will face dislocation, the loss of land as a source of sustenance and cultural identity. In part, these losses might be offset by cheaper food prices and a transition towards modernization. However, the scale of these benefits is highly uncertain. Global food prices have already proven much more volatile than anticipated, and earlier versions of modernization theories were not all that successful. Closer inspection reveals that the benefits for the people on the buy-side may also not be as clear. History offers important lessons for the social and political upheavals that may result from creating landless masses. The combined effect of enclosure and repeal of the poor laws forced landless people into the big cities in early modern England. While widely hailed with hindsight as a critical ingredient for England’s head start in industrialization as landless people provided cheap labor in factories, the actual outcome of social upheavals on such a scale is ultimately a gamble. England may have escaped a revolution, but Russia did not. In its own colonial hinterlands, the British Empire faced a mutiny after introducing land-titling programs in India that resulted in massive evictions of peasants from their lands. More generally, Karl Polanyi attributed the political upheavals of the first part of the 20th century – communism Russia and Fascism in Germany and Italy — to the long-term effects of a process of social transformation that included large-scale dislocations. This conclusion remains disputed, but the proposition that dislocating large numbers of people can be politically explosive is not.

The puzzle then is why these transactions are taking place at all. Specifically, why would a government of a sovereign state, especially one with a colonial past, sell control over large areas of its territory to a foreign government or investor? Why are most transactions in completed in secrecy? Why have development agencies largely supported these transactions (even when raising concerns about the lack of transparency) and supported them through titling programs? Finally, why do governments on the buy side pay so little attention to the potentially dislocative and disruptive effects these transactions might have for the people in selling countries? After all, we live in an interdependent world in which failing states or global migration patterns have repercussions far away from home.

Professor De Schutter discusses several rationales for these transactions and proposes an alternative strategy. The first rationale is the “win-win”, or transition scenario. Governments on the sell side benefit from capital inflows and investments, increase productivity, lower food prices and new employment opportunities for local people. Investors benefit from return on their investment, trade in global food markets, and the ability to increase food security in their home countries. He dismisses this scenario as based on unrealistic assumptions: it over-estimates the benefits of large-scale agricultural production and under-estimates the potential costs on peoples’ livelihood, food prices, and environmental impact. The second scenario is the “coexistence scenario”. It suggests that large-scale land acquisitions can coexist with traditional forms of land use. They can be geared towards unused areas of land and structured to ensure that they are compatible with concerns about food safety and local land use practices of the domestic population. However, as he points out, there is little evidence that actual transactions reflect these concerns or that the rights and interests of vulnerable people are sufficiently protected to give them any bargaining power. Instead, domestic governments and investors alike tend to play down, if not ignore, those with no voice, such as indigenous people, forest dwellers, or small peasants. Finally, local constituencies may no be able to compete with foreign investors and are therefore likely to be forced out in the emergent secondary markets for land. Against this background Professor De Schutter offers a third scenario, the reform scenario. In this scheme the government of the home country would channel investments into agriculture as part of a comprehensive program to reduce poverty and promote development. Preferential tax treatment, government procurement measures, training programs and teaming up foreign investors with local producers could foster these goals. A corner stone of this proposal is to strengthen the legal rights and interests of vulnerable people by limiting the alienability of land. This could be done, for example, by switching to contract systems and/or by titling communal rather than individual land rights. This would give greater legal protection against the government and other parties without exposing the community to the risk of alienation from the source of their sustenance. This proposal might be dismissed, because no investor would agree to such terms. Yet, the critical question is, why alternatives to titling and acquisitions are not even part of the negotiations.

I suggest that there are two answers to this question. One is political; the other is theoretical. The political answer is simple, but may not tell the entire story: governments may simply have no interest in caring for their people and tend to ignore marginalized groups that have no voice. The other is that governments both on the sell side and the buy side genuinely believe that these transactions are mutually beneficial not only for them as representatives of the people but for the people themselves. They base this on the belief that clear property rights held by individuals with the flexibility to reallocate these rights will result in efficient outcomes. There are powerful theoretical arguments that this proposition holds true, but it is critical to ascertain the assumptions on which they rest: perfect information and zero transaction costs. Coase himself has pointed out that these are highly unrealistic assumptions. Under what conditions then do private property rights regimes achieve efficient outcomes in a world that is beset with transaction costs? It is often suggested that law – i.e. the protection of property and the enforceability of contracts — is the answer. These, however, are only lubricants for lowering transaction costs and facilitating short-term maximization strategies. They say nothing about the ability of actors to foresee the effects of their transactions on the system, or the ability of the system to self-correct when inefficient outcomes have been reached. Imperfect information by market and government actors alike implies that inefficient outcomes – i.e. a departure from to win-win solution — are highly likely. Yet, property rights regimes that guard against any reallocation of property rights ex post other than by outbidding a monopolist owner operate to prevent self-correction.

Thus, whatever the merits of the specific solution Professor De Schutter proposes, the unrealistic assumptions on which notion rests that a global market for land will solve the world’s food problems should give pause. The most important objective of any policy design in a world where outcomes are difficult to predict by market and government actors alike, yet the costs of bad outcomes are likely to be substantial should be to ensure reversibility. Instead, the creation of individualized, alienable property rights by extensive titling programs and strong property rights protections has set in motion a decentralized process of cross-border land acquisitions that is difficult to stop, much less reverse once the actual costs of the scheme have become apparent.